Anthem first to respond to merger challenges, government opposes quick trial

Two large insurance mergers–Cigna-Anthem and Aetna-Humana–have been hot topics since the deals were proposed. The latest hurdle, suits filed by the Department of Justice (DOJ), may be a bigger issue than anticipated, as the government argued against Anthem, Inc.’s request for a speedy trial. The DOJ argued that the issues at hand are more complex than other cases, requiring more time than the 88-day scheduling range Anthem requested.

The inevitable lawsuit 

On July 21, 2016, the DOJ filed lawsuits challenging both the Cigna-Anthem merger and the Aetna-Humana merger. Attorney General Loretta Lynch stated that the mergers would eliminate too much competition and, therefore, the motivation for insurers to lower their premiums and offer better benefits. Aetna and Humana both stated they would contest the suit, arguing that the deal would actually improve options for Medicare patients. These companies are two of the four largest Medicare Advantage providers. According to the DOJ, an Anthem-Cigna merger would result in only three insurers with networks that would sufficiently serve the country’s largest employers.

Cigna’s response to the suit was less robust, stating that if the deal closed at all, it would be sometime next year. The company is reviewing the merger agreement, which may require defense of the deal, and analyzing its options. Anthem took the position that the suit was a “step backwards” for consumers, but seemed open to a settlement.  A joint statement from Aetna and Humana suggested that some divestitures could preserve competition, but the government was doubtful.

The American Hospital Association (AHA) and the American Medical Association (AMA) believe that the suit protects consumers, and that fewer coverage options would undermine innovation. The Center for Healthcare Research & Transformation director noted that even if the deals reduced prices insurers pay to providers, consumers may not see any savings. She believes that the suits will be difficult for the companies to win. Failure would be costly for Aetna and Anthem, as the agreements state that Anthem would pay Cigna $1.85 billion and Aetna would pay Humana $1 billion in termination fees.

State responses

States are taking action on the suits as well. Eleven states, plus the District of Columbia, joined the DOJ’s challenge against the Cigna-Anthem merger, while eight states and D.C. joined to fight Aetna-Humana. Other state actions are pending as well, such as the New Hampshire Insurance Department’s is review of the Cigna-Anthem proposal. An AMA analysis found that the  merger would result in control of 64 percent of the state’s insurance market. According to the state, the two proceedings are separate, and the insurance commissioner still has the authority to act in the event that the lawsuit does not succeed. The state department is not yet prepared to hold hearings, and will wait to take action until the lawsuit is resolved.

Speedy trial

Anthem, the only company that has filed an answer in the lawsuits, requested that the judge provide a trial within 88 days, with a decision on the injunction coming within 35 days of the trial’s conclusion. The government strongly opposes such a quick timeline, as the case comes against the largest health care merger ever to be proposed. The DOJ finds that the case is more complex than another recent coal antitrust suit that was quickly resolved, which Anthem relied upon as an example in its answer.

Big pharma gets bigger: Pfizer and Allergan in $160B deal

In one of the largest corporate deals ever, valued at approximately $160 billion, U.S pharmaceutical giant Pfizer Inc. and its Irish rival Allergan plc announced a merger that would create the world’s largest pharmaceutical company. Under the terms of the proposed transaction, the businesses of Pfizer and Allergan will be combined under Allergan plc, which will be renamed Pfizer plc. According to both companies, the deal is expected to be completed by the end of 2016 and predicted to have more than $25 billion in operating cash flow beginning in 2018.

Pfizer, based in New York, has the blockbuster cholesterol-lowering drug Lipitor® and erectile dysfunction drug Viagra® amongst its many offerings. Allergan, based in Dublin, Ireland, is best known as the manufacturer of the cosmetic drug Botox®. The merger will create some angst amongst politicians, as the combined company’s headquarters will be in Dublin. In a process known as corporate tax inversion, where bigger American companies buy smaller foreign ones and then relocate their headquarters to the location of the smaller company, the move would slash the combined company’s U.S. corporate tax bill substantially.

The U.S. Treasury Department recently unveiled new rules to make it harder for companies to do inversions. However, the Treasury rules alone will likely not stop the merger because former Pfizer stockholders will hold approximately 56 percent of the combined company and Allergan shareholders will own approximately 44 percent of the combined company. The Treasury rules require that an inverted company be tax-resident in its new home country under that country’s rules, not just U.S. law, to pass a test of whether it has 25 percent of its business activity in the new country. A company can be recognized as foreign-based by passing the threshold percentage.